Consumer Prices in U.S. Rose at a Slower Pace in October

An employee attaches price tags to displays at a Best Buy Co. store in Emeryville, California, on March 27, 2012. Photographer: David Paul Morris/Bloomberg

Nov. 15 (Bloomberg) -- The cost of living rose in October
at the slowest pace in three months, a sign U.S. inflation is in
check.

The 0.1 percent increase in the consumer-price index
followed a 0.6 percent gain the prior month, the Labor
Department reported today in Washington. The median estimate of
83 economists surveyed by Bloomberg called for a 0.1 percent
rise. The so-called core measure, which excludes more volatile
food and energy costs, climbed 0.2 percent, more than projected,
reflected rising rents and clothing costs.

Macy’s Inc. is among retailers planning holiday discounts,
while Amazon.com Inc. and Wal-Mart Stores Inc. are battling to
offer the best online prices on toys, indicating companies have
little leeway to charge more. The inflation outlook is in sync
with the Federal Reserve’s view and gives policy makers room to
concentrate on boosting growth.

“Inflation in the U.S. is very subdued,” said Sal
Guatieri, a senior economist at BMO Capital Markets in Toronto,
who correctly forecast the gain in prices. “This is allowing
the Fed to strive toward supporting job growth and reducing
unemployment.”

Bloomberg survey estimates for the consumer-price index
ranged from a drop of 0.1 percent to an increase of 0.3 percent.

Core Prices

The core CPI reading showed the biggest increase since June
and compared with a 0.1 percent median forecast of economists
surveyed. Core prices were up 2 percent for the year through
October, the same as in the 12 months through September.

A separate report from the Labor department showed more
Americans than forecast submitted claims for unemployment
insurance last week as superstorm Sandy wreaked havoc on the job
market.

Applications for jobless benefits surged by 78,000 to
439,000 in the week ended Nov. 10, the most since April 2011.
Several states said the increase was due to the storm that hit
the Northeastern part of the country in late October, a Labor
Department spokesman said as the data were released to the
press.

Also today, manufacturing in the New York region
contracted for a fourth straight month in November as Sandy
knocked out electrical power and limited activity, figures from
the Federal Reserve Bank of New York shoed. Its general economic
index was minus 5.2 this month compared with minus 6.2 in
October. Readings of less than zero signal contraction in
New York, northern New Jersey and southern Connecticut.

Shares Fall

Stock-index futures dropped after the reports, erasing
earlier gains, on the larger-than-expected increase in jobless
claims. The contract on the Standard & Poor’s 500 Index maturing
in December declined 0.2 percent to 1,350.7 at 8:44 a.m. in New
York.

The CPI report showed energy costs fell 0.2 percent in
October from a month earlier. A gallon of regular fuel at the
pump has averaged $3.46 so far in November, down 41 cents from a
recent high of $3.87 on Sept. 13, according to AAA, the biggest
U.S. auto group.

Restrained fuel costs may help Americans’ recover some of
the buying power they’ve lost this year as salaries stagnated.
Hourly wages adjusted for inflation decreased 0.2 percent on
average in October after a 0.3 percent drop the prior month, a
separate Labor Department report today showed. Over the past 12
months, real hourly pay was down 0.7 percent.

Food Costs

The consumer-price report showed food costs advanced 0.2
percent.

The core measure was propelled by a 0.4 percent increase in
the index for rents, the biggest gain since June 2008. A measure
designed to track the rental value of owner-occupied houses rose
0.2 percent. Clothing costs increased 0.7 percent, hotel fares
climbed 0.5 percent, and airline fares climbed 2.4 percent.

In contrast, medical care expenses were little changed, the
first time since July 2010 they didn’t increase. The index for
used cars and trucks dropped 0.9 percent, the fourth consecutive
decrease.

Macy’s, the second-largest U.S. department-store chain,
posted third-quarter profit that topped analysts’ estimates
while its forecast for the end of the year signaled it may use
heavy discounts to draw holiday shoppers.

Discounting Toys

Amazon.com has cheaper online prices for toys than Wal-Mart, Target Corp. and other major chains as parents begin
shopping for the holidays, according to a Bloomberg Industries
analysis. In a comparison of 125 randomly selected toys
conducted Nov. 8, Amazon had lower prices than Wal-Mart on 44
percent of the items, while Wal-Mart had the advantage on 13
percent.

Wal-Mart, the world’s largest retailer, today forecast
profit this year that trailed some analysts’ estimates after
difficult economic conditions slowed sales gains at established
U.S. stores in the third quarter.

“Current macroeconomic conditions continue to pressure our
customers,” Chief Financial Officer Charles Holley said in a
statement. “The holiday season is predicted to be very
competitive.”

Limited price pressures give policy makers room to maintain
a third round of unprecedented bond-buying aimed at spurring the
expansion and reducing unemployment. Longer-term inflation
expectations have “remained stable,” the Federal Open Market
Committee said in an Oct. 24 statement after its meeting.

Fed’s View

“The Committee also anticipates that inflation over the
medium term likely would run at or below its 2 percent
objective,” the Fed officials said.

Minutes of their last meeting, released yesterday, showed a
number of officials said the central bank may need to expand its
monthly purchases of bonds next year after the expiration of
Operation Twist.

The minutes also showed policy makers had a detailed
discussion about whether the central bank should link its policy
of holding the main interest rate at zero to numerical
measurements of unemployment and inflation , an approach that
participants “generally favored” over the current approach of
specifying a calendar date through which rates will remain low.

The CPI is the broadest of the three monthly price measures
from the Labor Department because it includes goods and
services. About 60 percent of the CPI covers prices consumers
pay for services ranging from medical visits to airline fares
and movie tickets.

Producer prices, released yesterday, unexpectedly fell in
October for the first time in five months as energy and vehicle
costs dropped. The 0.2 percent decline followed a 1.1 percent
increase the prior month.

Import prices unexpectedly climbed in October, led by
increases in energy expenses that have since been reversed. The
0.5 percent advance followed a 1.1 percent gain in September and
a 1.2 percent rise in August, figures showed last week.